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HRSA Proposes Civil Monetary Penalties for Drug Manufacturers that Overcharge 340B Covered Entities

The Health Resources and Services Administration (HRSA) within the U.S. Department of Health and Human Services (HHS) published a notice of proposed rulemaking impacting the 340B Drug Pricing Program (340B Program) on June 17, 2015. The proposed rulemaking, required under the Affordable Care Act, address 340B drug ceiling price calculations and penalties that may be imposed on drug manufacturers that overcharge providers participating in the 340B Program (Covered Entities). Comments on the proposed rules are due by August 17, 2015.

The proposed rulemaking is the HRSA’s first attempt to issue new regulations since its orphan drug rules were vacated by a court order. Additional 340B Program rulemaking, including the long-delayed “omnibus” 340B Program guidance, which is expected to cover topics including the definition of eligible patients and contract pharmacy arrangements, is expected to be issued in the near future.

Ceiling Prices

Under the 340B Program, participating drug manufacturers are prohibited from charging Covered Entities for covered outpatient drugs in amounts greater than defined 340B Program ceiling prices. The proposed regulations would offer regulatory guidance as to the calculation of this ceiling price. The proposed rules also specify that when the ceiling price calculation results in an amount that is less than $0.01 for a unit of a drug, the ceiling price will be $0.01 (penny pricing). Additionally, the proposed rules provide that a manufacturer must estimate the ceiling price for a new covered outpatient drug as of the date the drug is first available for sale and must provide HRSA with estimated ceiling prices for each of the first three quarters the drug is available for sale. Manufacturers would also be required to calculate the actual ceiling price for those three quarters, and refund or credit Covered Entities that purchased the drug at prices higher than the actual ceiling price.

Civil Monetary Penalties

As required by the Affordable Care Act, the proposed rules provide for civil monetary penalties to be imposed on drug manufacturers in an amount not to exceed $5,000 for each instance of overcharging a Covered Entity. The penalties would only apply to manufacturers that knowingly and intentionally charge a Covered Entity a price in excess of the 340B Program ceiling price. The HHS Office of Inspector General (OIG) would enforce the 340B Program civil monetary penalty actions using the standards it applies to other civil monetary penalties. The civil monetary penalties would be in addition to refunds to Covered Entities that may be required by the 340B Program statute.

The proposed rules provide that each order for a drug would constitute a single instance of overcharging, regardless of the number of units ordered. This would include drugs ordered directly through the manufacturer or through a wholesaler, authorized distributor, or agent. The proposed rules specify that it is the manufacturer’s responsibility to ensure the 340B Program discount is provided through its distribution arrangements. The preamble to the proposed regulations provides that a manufacturer’s failure to ensure that Covered Entities receive the appropriate 340B Program discount through its distribution arrangements may be grounds for assessing civil monetary penalties. However, the proposed rules provide that it will not be considered an instance of overcharging if the Covered Entity did not initially identify the purchase to the manufacturer as 340B-eligible at the time of purchase.

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About this Author

Elizabeth S. Elson, Foley Lardner, Medicare Compliance Attorney, Health Care
Of Counsel

Elizabeth Elson is of counsel with Foley & Lardner LLP where her practice focuses on counseling clients on federal and state health care legislation and reimbursement and compliance issues arising under government programs such as Medicaid and Medicare. She is a member of the Health Care Industry Team. Ms. Elson worked in the Los Angeles office until 2008, when she left as a partner to work as in-house counsel at Amgen in Thousand Oaks, California. She returned to Foley in 2011.

213.972.4665
Anil Shankar, Foley Lardner, Health Care Lawyer, Attorney, Legislation
Senior Counsel

Anil Shankar is an associate with Foley & Lardner LLP. He focuses his practice on complex regulatory and reimbursement matters, with a particular focus on the Medicaid program and issues affecting safety net providers. He has conducted extensive research and advised clients with regard to the implementation and development of Medicaid demonstration projects, and has analyzed opportunities for, and helped to implement, Medicaid supplemental payments. Mr. Shankar routinely advises clients on new developments in the Medicaid program, including issues related to Medicaid managed care and to behavioral health services. Mr. Shankar also advises clients on matters relating to the 340B drug pricing program. He is a member of the firm’s Health Care Industry Team.

213-972-4584